Insight

Aurum’s quarterly review – Q2 2021

Adam Moir | Product Specialist
28/07/2021
2 min read
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In summary…

The majority of Aurum’s managed funds and bespoke accounts delivered positive returns in the second quarter of 2021. Performance for Aurum’s commingled funds of hedge funds $US classes ranged from -0.03% to +1.8% for Q2.

Risk assets advanced over the quarter, supported by the continued roll-out of COVID-19 vaccinations across the world and significant re-opening from most major economies. The debate as to whether inflation is transitory or more structural rumbled on. Markets were reminded towards the end of the quarter that the actions of the US Federal Reserve (and other central banks), are still a significant driver of asset prices.

Multi-strategy funds drove performance in most portfolios for the quarter. Equity market neutral trading teams generated solid performance trading through Q1 earnings season and navigated the ongoing rotations from growth to value and back to growth over the quarter. It was pleasing to see healthy returns across a number of sectors with technology, financials and healthcare all contributing. The retail investor-driven short squeeze that made headlines in January, returned to the market periodically, although managers have become increasingly aware of this risk and exposure to crowded names has been notably reduced. Elsewhere, merger arbitrage, index rebalancing, commodity trading and credit relative value strategies also contributed to the strategy’s positive results.

Systematic strategies were largely positive. Commodity trading strategies had a particularly noteworthy quarter as oil and natural gas prices advanced strongly. In equities, short-term statistical arbitrage and machine learning strategies were positive as volatility remained elevated despite ticking down towards the end of the quarter, while longer-term strategies were challenged by ongoing factor rotations.

Event driven strategies were positive over the quarter. A notable deal in the semi-conductor industry was a strong contributor of returns over the quarter, overcoming a number of regulatory hurdles to near completion, although approval from Chinese authorities is still pending. Deal flow remains healthy, although spreads widened towards the end of the quarter as a high-profile deal in the insurance sector was blocked by the US Department of Justice. Index rebalancing trading was also profitable despite the large factor rotation impacting positioning.

The second quarter was negative for macro strategies. A hawkish pivot from the Federal Reserve in June led to an unwinding of the reflation trade as US government bond yields declined to their lowest level since March, while the yield curve notably flattened. Discretionary macro strategies were largely caught wrong-footed with losses stemming from short USD, long commodity, long gold and curve steepening positions. It is important to note, however, that discretionary macro strategies have historically proved invaluable in protecting capital in more turbulent months and were strong contributors in 2020 and remain a core component of the Aurum portfolios.

Aurum’s underlying equity long/short funds were positive over the quarter. Asia-focused managers were the primary drivers of returns with gains in consumer discretionary and technology sectors. Rotations between growth and value challenged positioning for US and Europe focused funds, however, performance was positive overall with long positions in consumer cyclical and industrial sectors outperforming.

While it remains to be seen whether or not inflation will persist, a great deal of time is spent to ensure that the Aurum portfolios are nimble and able to capitalise on many different possible outcomes that may lie ahead. Investing in managers with a trading mind-set, allowed the portfolios to build on the strong start to the year and should ensure that they are well-placed to navigate markets for the remainder of the year and beyond.

Disclaimer

This Post represents the views of the author and their own economic research and analysis. These views do not necessarily reflect the views of Aurum Fund Management Ltd.. This Post does not constitute an offer to sell or a solicitation of an offer to buy or an endorsement of any interest in an Aurum Fund or any other fund, or an endorsement for any particular trade, trading strategy or market.

This Post is directed at persons having professional experience in matters relating to investments in unregulated collective investment schemes, and should only be used by such persons or investment professionals. Hedge Funds may employ trading methods which risk substantial or complete loss of any amounts invested. The value of your investment and the income you get may go down as well as up. Any performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable indicator of future results. Returns may also increase or decrease as a result of currency fluctuations. An investment such as those described in this Post should be regarded as speculative and should not be used as a complete investment programme.

This Post is for informational purposes only and not to be relied upon as investment, legal, tax, or financial advice. Whilst the information contained in this Post (including any expression of opinion or forecast) has been obtained from, or is based on, sources believed by Aurum to be reliable, it is not guaranteed as to its accuracy or completeness. This Post is current only at the date it was first published and may no longer be true or complete when viewed by the reader. This Post is provided without obligation on the part of Aurum and its associated companies and on the understanding that any persons who acting upon it or changes their investment position in reliance on it does so entirely at their own risk. In no event will Aurum or any of its associated companies be liable to any person for any direct, indirect, special or consequential damages arising out of any use or reliance on this Post, even if Aurum is expressly advised of the possibility or likelihood of such damages.

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